LONDON (Reuters) - The European Union’s securities regulator has called for a tougher system for deciding whether foreign clearing houses can operate across the bloc, a change that would affect operators once Britain leaves the EU.
The EU has allowed 20 foreign clearing houses to offer their services to customers from the bloc, with applications for 25 more in the pipeline.
Clearing houses ensure a stock, bond or derivative trade is completed even if one side of the transaction goes bust. A foreign clearer’s home state rules must be “equivalent” or just as robust as the rules applied in the EU to ensure users are fully protected.
Steven Maijoor, chairman of the European Securities and Markets Authority or ESMA, said there is currently no leeway to turn down a foreign clearing house “on the basis of any material risk emerging from its review of a CCP (central counterparty) application”.
A clearing house is granted access to the EU if it meets four main conditions, but Maijoor wants a broader test included as well.
“In the case the current system is maintained, at a minimum, some key improvements to the recognition procedure should be envisaged: introduce a risk based assessment according to which recognition may be denied,” Maijoor said in a letter to the bloc’s executive European Commission.
The executive is due to propose changes to EU derivatives rules and they are being closely watched by firms in Britain.
Once Britain has left the EU, clearing houses based in the UK would have to show they are “equivalent” or open an operation on the continent to keep serving customers there.
The fear in Britain is that the EU’s equivalence process will be made intentionally harder to try to lock out UK operators from the bloc’s markets.
Top EU policymakers have already said that clearing of euro denominated derivatives, which London dominates, should shift to the euro zone after Brexit and tweaks to EU derivatives rules are seen as a potential vehicle for achieving this.
Reporting by Huw Jones; Editing by Keith Weir